My purpose is to establishing income from dividends and cash payments without selling my investments.
Dividends can be an excellent income stream for cash in the long term without selling your shares. This allows you to retain your market value and enjoy an increased income.
There are always ups and downs in the markets. If you are a day-trader, you enjoy that. Most of us long-term investors like to see less volatility in the markets, and a steady increase in the value of our portfolios. As we enter the retirement phase we would like to see a steady stream of income to supplement our retirement.
I happen to like dividends that pay quarterly and some monthly if I am focused on creating a stream of income. I look for companies that are stable and have a good track record, review the management strategies and future assessments they have as well as assessment of others in the market.
As far as company strengths, for me, 'cash on hand' is king. If a company has a bad month, quarter, or some market flux, can the company continue to pay dividends through the storm? Quick to follow cash is 'cash flow'. Does the company have the cash flow to support long term dividends they are currently paying? Here are a few examples I like to build a nice income portfolio.
1. Have a good mix in your portfolio. Some stocks, some mutual funds, some bond funds, but the key is to find some that pay dividends.
a. I like Northern Tier Energy LP Class A (NTI) (Energy sector). This shares sells for $25.93 (intra/5 Apr 13) and has a dividend of $5.08 per year, 1.27 per quarter for 19.30% return. Using "The Street" as a source, the gross profit for 2012 was 23% and 4.20 profit margin. They reported having $272 million cash on hand in Dec 12, up from 123 million in Dec 11. Market analysis estimate growth in both income and profit for 2013 and 2014.
b. I also like American Capital Agency Corporation (AGNC) (Financial sector). They are an MREIT, that passes mortgages through and creates a positive cash flow. The shares sell for $32.46 (intra/5 Apr 13) and has a dividend of $5.00 per year, 1.25 per quarter for 15.23% return. From 'Forbes', they reported the market cap of 8.8 billion, cash on hand reported at $2.3 billion. Recent news that Malon Wikus, CEO at AGNC, just purchase 300-thousand dollars of company stock in the last 6 months probably means he believes in the company's future. Additional news by 'DividendRank' has listed "AGNC as a Top 10 Real Estate Investment Trust (REIT)."
c. I would also like to look at some large cap stocks to mix with the nice return on assets. AT&T (T) is a very solid company as a wireless and wireline communications company. There shares sell for $37.76 (intra/5 Apr 13) and has a dividend of $1.80 per year, .45 per quarter for 4.80% return. Although this is much lower than the two above, this helps balance the portfolio for the long run. Cash and equivalents are 4.87 billion, providing the stability required for long term operations.
2. Here is a list of some Top-Rated Bond Mutual Funds and ETFs below. These are much easier to buy into rather than buying $1,000.00 bonds and get the diversity of a professionally managed account.
Top-Rated Bond Mutual Funds as of 2/28/13
Source: TheStreet Ratings 3 Apr 13
10 Best Equity-Income ETFs for 2013
|Fund Name||Get Info||Overall Rating||Risk Grade|
|PowerShares KBW Insurance||KBWI||A+||B|
|PowerShares KBW Bank||KBWB||A+||B|
|iShares MSCI USA Minimum Vol Idx||USMV||A+||B+|
|Guggenheim Spin-Off ETF||CSD||A+||B|
|FlexShs Morningstar US Mkt Fac Tilt||TILT||A+||B+|
|ProShares Ultra Consumer Goods||UGE||A+||B-|
|PowerShares KBW Premium Yld Eq REIT||KBWY||A+||B-|
|PowerShares Dynamic Leisure&Entert||PEJ||A||B|
|TrimTabs Float Shrink ETF||TTFS||A||B|
|SPDR S&P Aerospace & Defense ETF||XAR||A||B+|
Source: TSC Ratings as posted on The Street 2/28/13.
Finding investments are easy. Finding the right ones you are comfortable with that provide that long term cash flow and acceptable level of risk is what makes investing the challenge.
Tom Dorsey owns shares of C, AGNC and T, with the intent to further invest using these strategies in these or other investments.
As with any investment discussion, ideas or recommendations, each investor should evaluate the positive and negative effects this could have on their portfolio and assess the risks involved. Do you have an understanding of your personal emotional risk tolerance? You should understand your personal acceptance level before plunging into the markets. And you should review it as events and time changes in your personal and financial life.